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What is a Demat account?
Conceptually, a Demat account performs similar functions to that of a bank account. In a bank account, an account holder holds money in the account, and respective entries are made in the passbook. In a Demat account, instead of money, securities are held in electronic form, from which credit and debit of securities take place.
HOW TO USE A DEMAT ACCOUNT
Opening a Demat account has several benefits. Some of these include reduced paperwork, lower transaction settlement time, cost savings, and safe holding of all investments in one place.However, many budding investors find it difficult to understand the technicalities of it. This is often because many new investors do not have a clear idea about how to operate a Demat account, or how to buy shares using Demat account. The information below may help beginners as well as experienced investors to understand how to use the Demat account.
Type’s Of Demat Account :
There are two types of Demat accounts :
- Repatriable Demat account
- Non-repatriable Demat account
Benefits of Demat system :
Demat account for shares and securities with business purpose
The benefits of demat are as follows:
- Easy and convenient way to hold securities
- Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. are mostly eliminated)
- Reduced paperwork for transfer of securities
- Reduced transaction cost
- No “odd lot” problem: even one share can be sold
- Transmission of securities is done by DP, eliminating the need for notifying companies.
- Automatic credit into demat account for shares arising out of bonus/split, consolidation/merger, etc
Documents required for Demat account :
To open a Demat account you have to provide documents which fulfill the requirements of KYC (Know Your Customer) norms. You have to sign a contract with Stock broker. Generally the documents are:
- PAN (compulsory)
- Bank Statement
- Address proof
- Income Tax Return
- Two colour photos
- Bank crossed cheque (If required)
- KYC details
- Aadhar Card
Disadvantages of Demat Account
- Trading in securities may become uncontrolled in case of dematerialized securities.
- It is incumbent upon the capital market regulator to keep a close watch on the trading in dematerialized securities and see to it that trading does not act as a detriment to investors.
- For dematerialized securities, the role of key market players such as stock-brokers needs to be supervised as they have the capability of manipulating the market.
- Multiple regulatory frameworks have to be conformed to, including the Depositories Act, Regulations and the various Bye-Laws of various depositories.
- Agreements are entered at various levels in the process of dematerialization. These may cause worries to the investor desirous of simplicity.
- There is no provision to close a demat account, which is having illiquid shares. The investor cannot close the account and he and his successors have to go on paying the charges to the participant, like annual folio charges etc..
- After liquidating the holdings, many Indian investors don’t close their dp account.They are unaware that DPs charge even on dormant accounts.
SEBI Demat notification : After 31st Mar 2019, transfer of physical shares of listed companies shall not be processed.(Except Transmission & transposition) .Act now Dematerialize physical shares held, if any
Prevent Unauthorized Transactions in your Demat account –> Update your Mobile Number with your Depository Participant.
Important notice to Demat customers :
You can update your Aadhaar now (for NSDL Demat accounts)
You can also submit a copy of your Aadhaar Card / e-Aadhaar to the nearest DP servicing branch duly acknowledged by holder(s) with a request on Common Aadhaar application form, mentioning DP ID and Client ID (Demat account number) and consent to update your Demat account and other Bank relationships with Aadhaar. Your Aadhaar will be updated post authentication.
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As part of Go-Green initiative, kindly update email ids,mobile numbers,bank account details in your demat account so as to receive all communication/dividend, interest,redemption payment electronically with SMS alerts.
KYC is one time exercise while dealing in securities markets – once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
Features of a Demat Account ? :
- Preferential pricing for the Imperia, Preferred & Classic customers
- Auto credit of rights / bonus / public issues in your Demat Account through ECS
- Easy access to your investments,statements through the Demat Tab on Net Banking
- No Stamp Duty on transfer of securities held in Demat form.
How Does Work Demat Account :
A Depository is like a bank where securities are held in electronic form. There are two Depositories in India – National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).
There are a number of benefits:
- Settlement of securities are traded on exchanges
- Shorter settlements enhance liquidity
- Changing your address, registering a power of attorney and even signatures can be effected in Demat accounts by submitting requests along with the relevant documents to the Depository Participant
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